If you operate your business as a professional service provider where your clients rely on your expertise to provide service, here, I am talking all lawyers, doctors, accountants, tax professionals, consultants, athletes, authors, securities traders, actors, singers, musicians, entertainers, and others, then you will be sad to learn that Congress has officially pushed us aside from saving a lot of money when our business is starting to turn significant profit. From the few Spanish words that I know, I will say “muy mal”.
What were they thinking, this is complete madness!
Okay, let me calm down because other business owners will benefit from the new tax law. Engineers and Architects were able to wiggle their way out of this professional service category. Hmmm, I wonder why? But, they are completely exempt from this limitation and can take the 20% deduction regardless of their business income.
To all my architects and engineers, do you know why congress favors your professional trade?
I am sitting here thinking that I really want to believe the same explanation that I gave to clients over the years. I will now have to coach my self to believe it too. It goes like this, whenever, there is a tax law change there will be winners and losers. Whenever I say this, I most likely get a response of “this is not fair”. Well, I join you on this one and will also say, this is not fair! I don’t like to be on the losing deductions side. But unfortunately, there is nothing we can do about it.
So how does this work now that your business is in the “unfriendly” business category:
1) Step 1: If your professional service business makes a “profit” it should be less than $315,000 or less if married filing a joint return, or $157,500 or less if filing as a single taxpayer. Then no worries you will qualify for the 20% business deduction.
2) Step 2: If your business makes $415,000 if married filing a joint return, or $207,500 filing as a single taxpayer. Then you don’t qualify for the deduction
Some planning steps you can implement if you fall in this category and your income is above these threshold, such as changing your entity type. This can help you to qualify, but of course you will need to run your numbers to see if all the facts will work out in your favor.
For information on how to implement, these money-making steps schedule a free consultation here
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